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The euro area’s deepening political divide

Ashoka Mody, (2018), «The euro area’s deepening political divide», Vox.eu, 21 Μαρτίου

The University of Cambridge economist Nicholas Kaldor was first to warn that the euro would divide Europe (reprinted in Kaldor 1978). His critique came in March 1971 as a response to the Werner Commission Report, which presented the original blueprint of what would eventually be the euro area’s architecture (Werner 1970). Kaldor wrote that a single monetary policy (and the accompanying one-size-fits-all fiscal policy framework), when applied to diverse European countries, would cause their economies to diverge from one another. The logic was simple: a monetary policy that is too tight for one country can be too loose for another. The economic divergence, Kaldor said, would cause a political rift. Such warnings continued. The University of Chicago economist and Nobel laureate Milton Friedman (1997) predicted that the euro’s flawed economics would “exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues”.

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